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The Journal of Real Estate Finance and Economics

Erschienen in:

01.04.2013

Deriving Optimal Portfolios for Hedging Housing Risk

verfasst von: Cristian Voicu, Michael Joseph Seiler

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 3/2013

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Abstract

Households that contemplate moving to different cities or trading up/down in the future are exposed to substantial housing risk. In order to mitigate this risk, we derive optimal portfolios using CME housing futures. Housing investment risk is hedged by selling housing futures amounting to the full value of the home. Housing consumption risk is hedged by buying housing futures in each city where the household might move. The size of the hedges depends on the probability of moving, on home values, and on labor income in each region. The hedging demands offset each other when the household intends to live in the same home indefinitely.

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Ignoring housing consumption leads these authors to exaggerate the exposure to housing risk. Englund et al. (2002) conclude, “renters experience almost no losses relative to the unrestricted portfolio.” However, renters are clearly exposed to housing price risk since unexpected increases in real estate would also drive up rent prices, which would make them poorer, everything else constant. A similar argument would be that countries with no oil reserves are still exposed to oil price risk.

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Titel: Deriving Optimal Portfolios for Hedging Housing Risk
verfasst von: Cristian Voicu
Michael Joseph Seiler
Publikationsdatum: 01.04.2013
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 3/2013
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-011-9328-x

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Erratum to: Historic Preservation: Preserving Value?